Pages

Month: June 2012

Earlier this year I visited my old stamping ground of Jakarta to attend a two day conference on opportunities in the water sector in Indonesia.

Only around 30% of Indonesian’s have access to a reticulated water supply and there is almost no fully potable reticulated water. There is almost no reticulated sewer in the whole country; Jakarta, a city of nine million people, is only 4% sewered.

Given that Indonesia is the fourth most populous country in the world with 240 million people there is plenty of work to do.

The Indonesia federal government is keen to attract private sector investment into infrastructure and is bending over backwards in putting together the governance structures and guarantee organisations required to attract investment. Indonesia’s recent credit rating upgrade mean that now would appear to be the time to get busy building water infrastructure in the big archipelago under PPP contracts.

What the catch you say? Well it turns out that in most of the country the provision of water services is the right and responsibility of local governments or PDAMs. Many PDAMs are effectively bankrupt and have very limited organisational capacity. Tariffs are set by local politicians and are nowhere near cost-recovery. They do not make promising partners.

The federal government and a number of semi-government financial institutions are currently in the process of pushing through a couple of complex bulk water supply projects under a PPP framework. These seem unlikely to go smoothly.

One of these SPAM projects (SPAM is the abbreviation in Bahasa Indonesia for a drinking water supply project) in Bandar Lampung has now moved to the second stage of the tender process. The tenderers are a curious blend of Korean, Japanese, Philippines and Indonesian financiers and engineering firms. Interestingly Manila Water’s local partner is one of the world’s largest pineapple producers, the Great Giant Pineapple Co. with a plantation in Lampung…presumably also looking to also be an offtaker for the water produced.

Watch this space…I believe there are huge arbitrage opportunities for parties that can truely understand and manage the very real risks in the Indonesian PPP market. Those that nail this will have the pick of the most lucrative projects as Indonesia builds out its basic infrastructure.